• O&G: Balancing demand and supply

To combat the issue of oil oversupply in the market, last Friday saw the alliance of Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members, also known as OPEC+, reaching an agreement on the extension of oil output cuts.

A press release by the OPEC revealed that the fifth OPEC and non-OPEC Ministerial Meeting, following deliberations on the immediate oil market prospects and in view of a growing imbalance between global oil supply and demand in 2019, decided to adjust the overall production by 1.2 million barrels per day (mbpd), effective as of January 2019 for an initial period of six months.

“The contributions from OPEC and the voluntary contributions from non- OPEC participating countries of the ‘Declaration of Cooperation’ will correspond to 0.8 mbpd (2.5 per cent), and 0.4 mbpd (two per cent), respectively,” the statement also read.

The ‘Declaration of Cooperation’ was reached on December 10, 2016, between OPEC and non-OPEC producing countries.

“This will, at once, help reduce concerns towards an oversupply situation after the US president exempted eight countries including China from bruising sanctions that the country was re- imposing on Iran against the backdrop of strong supply from US shale oil,” the research arm of Public Investment Bank Bhd ( PublicInvest Research) commented on this latest development.

“The OPEC+, which includes Russia and Kazakhstan, possesses unprecedented influence over the world economy, controlling 55 per cent of global oil supplies and 90 per cent of proven reserves.”

The research arm believed oil prices will see some stabilisation at the current US$60 per barrel (bbl) levels for 2019, supported by demand and supply fundamentals.

“Prices for Brent crude added 0.2 per cent, while US West Texas Intermediate (WTI) slightly lower by 0.5 per cent to US$61.67 per bbl and US$52.61 per bbl respectively post-OPEC meeting, but are still 7.8 per cent and 12.9 per cent lower year to date (YTD).”

Following this development, Economic Affairs Minister Datuk Seri Mohamed Azmin Ali said in a statement that Malaysia has agreed to continue its voluntary commitment to reducing total oil output by 15,000 barrels per day from an earlier cut level of 20,000 barrels per day.

Azmin went on to say that this decision was a testament of Malaysia’s commitment to international cooperation to face economic challenges posed by the global oil market.

“Even though we are a small oil producing country, Malaysia stands in solidarity with other oil producing nations in pursuing the strategic objective of achieving global market stability in the interest of all oil producers and consumers, taking into consideration the prevailing market conditions and prospects.”

Hopefully, this move will not only keep in check the oversupply of oil in the market, but also slow down falling oil prices.